Let's delve into a topic that's gaining traction in the energy sector: the burgeoning role of hydrogen. It's akin to a modern-day gold rush, with projections of over $320B in investments by 2030. The anticipated leap in clean hydrogen production from less than 1 million tons today to around 70 million tons annually signifies an astounding CAGR of over 100% for green hydrogen in the next six years.
Green Hydrogen's Role in Decarbonization
Green hydrogen is widely regarded as a key solution for sectors traditionally challenging to decarbonize, such as chemicals and steel manufacturing. Currently, these industries consume over 90 million tons of hydrogen annually, predominantly produced from fossil fuels, contributing significantly to global emissions.
The Steel Industry's Hydrogen Demand
Steel production is a major player here, but it currently uses less than 10% of the world's hydrogen. Traditional methods of steel and iron manufacturing involve heating iron ore with coking coal. Every ton of steel generates 1,5-3 tons of CO2, which contributes to about 6% of global greenhouse gas emissions. Enter the alternative: electric arc furnaces running on hydrogen, cutting out the need for fossil fuels.
Analyzing the Numbers
According to estimates by the IEA and AFRY, decarbonizing steel production with hydrogen would require about 97.5 million tons of hydrogen per year. This translates to a need for approximately 1.4 TW of renewable energy capacity. With the current pace of renewable energy capacity addition (around 350 GW in 2022), we'd need four years to get there. But let's be real, most of the next five-six years renewable capacity additions will not go towards making green steel.
Economic and Regulatory Challenges
Right now, the steel industry isn't exactly jumping on the green hydrogen bandwagon. Why? Cost and lack of regulatory push. Green hydrogen is pricey compared to the grey stuff and using it now would hike steel prices by a whopping 50%.
At COP28 in Dubai last December, steel execs were pretty clear: they'd switch to green hydrogen if there was a carbon price on their products. The European Carbon Border Adjustment Mechanism (CBAM) is a step in that direction, but will it be enough to drive widespread adoption of green hydrogen in steel? I'm not so sure.
The Alternative: Carbon Capture and Storage (CCS)
A more elegant and less expensive solution would be to outfit existing smelting plants with carbon capture and storage technology. This would require far less investment but will lead to the same results. According to IEA estimates, the cost of carbon capture and storage in the steel industry varies in the range of $40-100 per ton. This looks like a good much for an expected CBAM CO2 price of $80-120/ton.
Looking at this from a Greentech investor or startup perspective, I'd be eyeing CCS startups and projects, not hydrogen. Sure, about 40 projects are planning to use green hydrogen, but only 6 with CCS (according to the Green Steel Tracker). My money's on CCS for the long haul.
Inviting Your Insights
I'm curious to hear your perspectives. Do you believe hydrogen is the future for steel decarbonization, or does CCS offer a more viable path? Let's discuss the implications for our environment and the economic landscape.